A1. This could make it easy to by-pass your password altogeather, what you could do is create 2 seperate installers: Setup.exe and Upgrade.exe then place both of these into a third installer. You can then use code to check for an existance of previous version/versions and if true run Upgrade.exe otherwise run Setup.exe which will then prompt for the password. Otherwise you could use the CheckPassword function see Inno Setup Help for more information.

A3. If the file is already in the Windows Folder, I'm not sure why you would want to copy it to app, since the Windows Directory is a system path so you should be able to call that file from any program for example, if you open start run and type calc it will open calculator, otherwise you would use something like.
[Files]
Source: {win}\explorer.exe; DestDir: {app}; Flags: external

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